High season now "six months"!
Norpalm talks still ongoing, but "not losing any sleep over it".
Looking in to M&A in areas "other than palm oil" in Ivory Coast.
News re what the cash is being used for - "don't want to put a timeframe on it", but "one or more things over the next little period".
It seems that certainly for this year DKL are going to have an extended high season, which bodes very well indeed. Particularly with the palm oil price having bounced recently.
It would be great if as suggested DKL could expand into cocoa or cashew nuts given that the Ivory Coast is already a leader in both. DKL already has the infrastructure in place this, so this would be very interesting, and I gather that tax breaks have recently been introduced for local cashew processing.
Good news today, with (a) reduced borrowing costs and (b) a show of confidence from SocGen.
Cantor Fitzgerald have as a result increased their price target to 26p and say Buy:
"1024 GMT - DekelOil is taking advantage of the favorable terms of its long-term loan to reduce its short-term debts, say analysts at Cantor Fitzgerald. The drawdown will reduce the overall costs of borrowing for DekelOil and Cantor Fitzgerald says it has reduced its debt forecast by 50 basis points as a result. The financial services company says that it maintains its buy recommendation for DekelOil, and upgrades the target price to 26 pence per share, from 24 pence previously. Shares at 1019 GMT are down 1%, or 0.10 pence, at 10.25 pence."
DekelOil Public Ltd. (LON:DKL) is one of the leading commodity groups trading in palm oil. Britain's involvement in African palm oil goes back to 1907 when one William Lever from Bolton was one of the first to import palm oil to make soap at his Lancashire plant. He then set off for the Congo with his brother James and established Lever Brothers. Lever Brothers merged with the Dutch company Margarine Unie in 1931 to form Unilever (LON:ULVR).
Palm oil can now be found in half of all consumer goods in Western grocery stores from chocolate, ice cream, baked goods, soaps, lotions, and detergents.
DekelOil has comea long way since its IPO in 2013. It runs a profitable seed to palm oil operation in the Ivory Coast which produced 39,000 tonnes last year.
Its shares climbed steadily in January after it posted record production levels for Q4 2017 and was rewarded with a BUY recommendation by brokers Cantor Fitzgerald. Be aware that in mid-2017 the company's shares fell from 14 pence to 9 pence after it revealed mechanical problems at its mill.
70 percent of production takes place between January and June and the outlook for 2018 is promising. DekelOil has palm supply agreements with many local farmers and does not operate company-owned estates as other commodity producers do.
In 2015 London-listed New Britain Palm Oil was acquired by Malaysian palm oil giant Sime Darby (KLSE:SIME). Could DelekOil be another acquisition target?"
"It runs a profitable seed to palm oil project in the Ivory Coast, and last year pumped out 39,000 tonnes. The shares have been climbing steadily over the past two weeks after it posted record levels of palm oil production in its fourth quarter and was rewarded with a Buy rating from analysts at Cantor Fitzgerald.
Adam Forsyth at Cantor says: A stronger fourth quarter shows DekelOil back on track. The ability to secure premium prices is also apparent. It is set to complete the planned capacity increase at its mill ahead of the peak harvesting season starting in February.
"One more bonus for investors could be the M&A play. Malaysian palm oil producing giants such as Sime Darby who have a stake in Battersea Power Station have a history of snapping up smaller players.
In 2014, Felda Global Ventures acquired AIM-listed Asian Plantations for £120 million.
This was followed in 2015 by Sime Darby who completed a $1.7 billion acquisition of London-listed New Britain Palm Oil.
"DekelOil Public Limited, operator and 100% owner of the profitable and vertically integrated Ayenouan palm oil project in Côte d'Ivoire, is pleased to announce a positive update on its ongoing programme to improve the productivity and profitability of its crude palm oil ('CPO') extraction mill ('the Mill') in readiness for the upcoming peak harvesting season which is expected to commence imminently.
· Installation of a second boiler for the Mill to minimise downtime in the event of a breakdown has been completed ahead of schedule and on budget
o Expected to lead to an increase in CPO production in 2018 as lost production as a result of boiler issues in the 2017 high season should be avoided going forward
o As announced in November 2016 the total capital investment for the boiler stood at 1.25 million
· 25% upgrade in the Mill's capacity to 75 tonnes per hour ('tph') from 60tph to increase the volumes of CPO produced at Ayenouan in the peak period has been completed and testing has proved successful
· The additional boiler and capacity increase form part of the Company's ongoing plan to optimise performance of the Mill, which included the following initiatives that were completed in 2017:
o Construction of an additional 3,000t tank to increase overall on-site CPO storage capacity to 8,000t to provide flexibility regarding timings of the sale of CPO and enable sales prices to be maximised
o Acquisition of an Empty Fruit Press to extract additional CPO from empty fruit bunches
· The team continues to develop its smallholder network to expand the reach of collection hubs and increase Fresh Fruit Bunch delivery to the Mill
DekelOil Executive Director Lincoln Moore said, "We continue to make excellent progress in optimising our processing and production capability. The installation of the second boiler and the 25% increase in capacity at the Mill are both part of our ongoing programme to maximise CPO production at Ayenouan, particularly during the high season in Cote d'Ivoire which we are now entering for 2018. These initiatives are designed to reduce downtime and eliminate bottlenecks at the Mill so that more fruit can be processed to produce CPO and PKO. In tandem with these Mill improvements, we continue to work closely with local smallholders to facilitate the delivery of fruit to the Mill via our distribution hubs which are strategically located at sites around our project area. We are determined to ensure all production and logistical operations are fully optimised during the upcoming high season."
I averaged down towards the back end of the last price fall and am in the black again. With so many large-scale disasters in the LSE ATM (CLLN, Capita, Provident Fin.), this could actually be a (relatively) 'safe' bet given its recent news. Let's consider - Cote d'Ivoire or the UK, hmmm - the times are changing.....
April/May for full year results, as usual.
Divi expected to continue, progressive growth.
Second boiler "imminent".
Nursery equipment on site at Guitry, installation this year.
Norpalm talks still ongoing.
Aiming for "solid periods of production growth" in Q1/Q2
DekelOil (BUY) A return to form
DKL LN (8.9p, TP 24p), Market Cap: £27m
Our view: A stronger Q4 shows DekelOil back on track in our view following earlier one-off mechanical issues. The ability to secure premium prices is also apparent. The company is now set to complete the planned capacity increase at the Ayenouan mill ahead of the peak harvesting season starting in February. The production numbers and underlying return to form give us confidence that this will drive growth at least in line with our forecasts and we reiterate our BUY recommendation and target price of 24p.
· Q4 rebound in production DekelOil has released its full year production update showing a healthy rebound in Q4 CPO production and sales delivering the companys highest Q4 CPO , reversing the weaker data seen in Q3 and delivering overall production broadly in line with 2016 at 38,736 tonnes. Sales of CPO were 38,378 t, slightly ahead of our forecast 38,085t. Pricing was also stronger with the company averaging 680/t in the full year ahead of our 665/t forecast and we estimate that this represents a premium to the Rotterdam CPO price of 7%. Palm kernel and palm cake production and sales were slightly lower than last year but again prices were stronger than expected with palm kernel oil showing particular gains.
· Return to form ahead of capacity increase The results reflect a return to normal operations following one off mechanical issues earlier in the year. The CPO extraction rate has been a little lower than in previous years at 22.6% compared to 22.9% in 2016. While this is good for the Cote dIvoire, a lower oil content is thought to be due to the processing of slightly younger fruit following heavy planting over the last 5-7 years. The extraction rate should be expected to rise again with plant maturity. The company is now set to increase capacity at the Ayenouan mill to 75 tonnes per hour from 60 and the new capacity will be in place ahead of the peak harvesting season starting in February.
· Valuation reflects cashflows We value DekelOil on a DCF basis with a cost of equity of 15% and cost of debt of 10%. This gives us a target price of 24p. The principal risks to our valuation are volatility in the CPO price and production volumes.
"DekelOil Executive Director Lincoln Moore said, "Thanks to a record Q4 performance, our 2017 CPO production, at 38,736 tonnes, closely matches last year's total, a highly creditable outcome particularly when the unplanned stoppages at the Mill during May and June are taken into account. The combination of stable production and higher CPO pricing will translate into record full year revenues and profits.
"Prior to 2017, CPO production at Ayenouan had grown for three consecutive years. We expect 2018 will see a resumption in annual CPO production growth. Our confidence is based not only on DekelOil's growing standing among local smallholders as an established and reliable buyer of fruit, but also the imminent completion of the 25% increase in the Mill's capacity to 75 tonnes per hour from 60 tonnes per hour. Importantly, this will be in place in time for the commencement of the peak harvest season, which typically runs from February until June in Côte d'Ivoire."
I don't know the answer but I think it is the loss of confidence following the two issues that you mention. I think that we will be kicking ourselves early next year if we don't top up at these prices!
Seems to me that this is a well run company with a good management team. However, as with almost all commodity-based companies, it has little control over price and sometimes production (weather factors etc.). The sell off seems over done, unless it is a comment on the base commodity itself and its market, but brokers need to be more realistic in their future share price estimates if they wish to retain credibility - the estimates have been stupidly high for too long. Nevertheless , all things equal and assuming no commodities market collapse, I see this recent drop as a good buying opportunity.
Back from hols, and surprised as everyone was about the Q3 update and the subsequent follow-up. Management have been extremely naïve in not flagging the lower Q3 production in the interim results, and naïve/negligent in not having satisfactory revenue recognition controls in place.
Nevertheless, I do believe the share price has over-reacted, as often happens in these circumstances. Management HAVE proven that they can build from scratch and in good time a highly profitable and successful operation which can be replicated elsewhere. They now have to show that they can similarly manage successfully expectations of a PLC and its shareholders.
Beaufort Securities' latest update post the Q3 production update concludes as follows - hopefully management have guided them prudently. If so, then the current share price is extremely cheap:
"Beaufort considers DekelOil is capable of producing as much as £2.0m free cashflow during 2017E, followed by around £5m the year after. Importantly this demonstrates managements willingness to move its ambitious planning forward without directly exposing shareholders to a higher risk profile. Based on modestly revised 2017E and 2018E revenues estimates of 31.1m and 35.8m, delivering fully-diluted earnings 1.60p and 2.20p respectively, the shares now trade on forward multiples of just 6.5x and 4.7x respectively while offering yields of 1.7% and 1.9%. Beaufort retains its Buy recommendation on DekelOil, while repeating its price target of 23p/share."
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